Indian Tribes and Internet Gaming Discussed at iGaming Conference

Earlier this year, I had the pleasure of participating in the tribal panel at the iGaming North America conference, which was held over a three-day period in Las Vegas. I decided to attend the entire conference and immersed myself into Internet/online gaming issues for a 48-plus hour period, hardly coming up for air. What I learned was voluminous, yet simple. Although throughout the conference there were heated discussions on a wide variety of topics, ranging from the recent indictments of major online poker entities on April 15 to alternative payment methods, online gaming for free play, and the cannibalization of brick-and-mortar customers. One prevailing opinion on which every expert seemed to agree was that the implementation of online gaming in the United States as a legal and regulated industry is inevitable—a matter of when and in what form, not if.

Several companies (such as certain horse racing forums) hailed from particular states and international jurisdictions where online betting in various forms is currently legal. However, the main emphasis of discussion seemed to center around poker and other forms of traditional online gaming (for real dollars) and the eventual legalization stateside in a broad manner.

My reason for attending and focus of interest, obviously, is how this sector of gaming affects, and may provide opportunities for, our tribal facilities. I came away with two epiphanies, as it were, on behalf of my tribal clients:

1) There are some allowances under the Unlawful Internet Gambling Enforcement Act (UIGEA) that provide exemptions for tribes so that tribal gaming facilities could implement certain forms of online betting immediately without being in violation of the act—and perhaps should get a “jump” on the industry.

2) In the absence of implementing anything now, prior to a broader law being passed, if our tribal facilities don’t do research, start preparing a technological system, and get “set up” to implement online gaming when it does becomes legal, most experts believe they will be “left behind.”

The first topic is rather interesting, and one proactive vendor, Atlantis Internet Group Corp. (ATIG), actually applied for and received an opinion from the National Indian Gaming Commission (NIGC) affirming that its tribal-to-tribal Internet gaming system does not violate the UIGEA. In the opinion, which was issued in 2009, then-Acting General Counsel Penny Coleman analogizes tribal-to-tribal (on sovereign trust land) online gaming as “islands in an ocean” (the ocean being the worldwide Internet) connected by “bridges” via private networks, also known as VPNs.

It is my understanding—although I leave the true interpretations to attorneys—that under this exemption, gaming tribes can implement most games online that their compacts currently allow. Online bingo games, for example, categorized as forms of Class II gaming, have already been operated via closed network systems between federally recognized tribes located on trust lands, and a private Internet system seems to fall into the same legal category. However, one state, Arizona, specifically does not allow online games under the tribal compacts. From speaking with several tribal representatives, it is clear to me that there is a logical consensus that no tribe wants to re-open compact negotiations or put IGRA and existing compacts at risk. However, many tribes are beginning to understand the importance of the Internet gaming space and how it could augment their own revenue—and negatively impact their existing revenue if/when competitors implement, if they themselves do not.

The second topic is somewhat concerning. It is no secret that our tribal gaming facilities are operated by governmental bodies and are therefore subject to the political process. This often translates into longer periods to make decisions and implement change. This is understandable and logical, as elected leadership must weigh the pros and cons of any decisions very methodically and thoughtfully since they represent their communities and tribal constituents.

Unfortunately, when a tribal government’s main revenue stream is derived from gaming (which is still the case with the majority of our tribal nations, even though many are wisely diversifying their business holdings), its commercial competition is not operating under the same time constraints and can often move quicker to implement change or adopt new technology. This has been manageable with brick-and-mortar casinos since Indian gaming has been provided a certain amount of geographic exclusivity; the commercial competition is often located far enough away to afford the tribal facility its own locals market. Our tribal facilities, especially those in regional and rural markets, have been very successful at capturing their locals markets, building brands and loyalty programs that have grown and held their customer bases—even with the political process slowing down some decision-making time.

However, in the online space, geographic boundaries disappear and the landscape becomes very hard to define. Competing against commercial powerhouses in the virtual world of cyberspace could be a daunting task. Experts believe that online gamers will be drawn to those sites with the most bandwidth, thus offering the largest prizes and choices. One of the questions bantered around on the panels was how well our tribal gaming facilities could compete if online gaming was legalized nationally on a federal level versus intrastate on a state-by-state level and confined within the boundaries of certain states. Some of the tribal panelists who are entrenched in the political process in regard to Internet gaming bills being proposed both at the state and federal levels indicated that, regardless of the varying positions (interstate vs. intrastate), most tribes do agree that some exclusivity must be carved out for tribes in these bills—and if there isn’t, they will fight them. The political process certainly seems as though it will be long and unpredictable.

It was an extremely interesting dialogue, and I came away with more questions than answers, my interest certainly piqued and heightened. The week following the conference, I hosted a talk show on the topic (which can be found at www.blogtalkradio.com/

cemaudioedge). On the show, I interviewed Steve Rittvo of The Innovation Group (one of the founders and organizers of the iGaming conference) and Tony Armstrong, senior gaming operations manager at the Cherokee Nation in Oklahoma. Both Rittvo and Armstrong expressed a strong interest in the online gaming space, and both believe our tribal gaming facilities need to be focused on this topic. Rittvo’s firm has made available to the public an extremely informative, recent and in-depth survey that indicates online gaming does not cannibalize brick-and-mortar customers. Armstrong’s division at Cherokee Nation Entertainment is exploring and researching online gaming possibilities from legal and regulatory angles, as well as the technology aspects.

After listening to the experts and talking to several tribal representatives, it is clear that there are certainly a wide variety of opinions on Internet gaming. However, one point everyone agrees with is that all of our gaming facilities would welcome additional revenue—and do not want to see any more declines in revenue. With that in mind, I encourage further exploration of the i-gaming space and welcome our readers’ and listeners’ thoughts and opinions on this cutting-edge and exciting topic.

Scan this tag with your mobile phone to listen to Red Horse’s Internet talk show on the same topic.

Valerie Red-Horse is an investment banker and financial advisor in her role as president/owner of Red-Horse Financial Group Inc. offering securities through Western International Securities Inc., a FINRA and SIPC member firm. Red-Horse Financial Group and Western International Securities, Inc. are separate and unrelated companies. Red-Horse may be reached at valerie[at]wisdirect.com or (818) 389-4714.